Question

The Wall Company has 142,500 shares of common stock outstanding that are currently selling at $30.75. It has 4,310 bonds outstanding that won't mature for 20 years. They were issued at a par value of $1,000 paying a coupon rate of 6%. Comparable bonds now yield 9%. Wall's $100 par value preferred stock was issued at 8% and is now yielding 12%; 8,500 shares are outstanding. Assume that the coupon payments are semi-annual. Develop Wall's market value based capital structure. Round the values to the nearest dollar and the weights to two decimal places of percentage. Do not round your intermediate calculations. Round PVF and PVFA values in intermediate calculations to four decimal places.

Component	Value	Capital Structure
Debt	$	%
Preferred stock		%
Equity		%
Total Capital	$	%

Answer 1

Semi Annually: COUPON RATE 6.00% YEAR TO MATURITY 20 NPER 40 (Periods to maturity x 2) PMT 30 (face value x coupon rate)/2 FACE VALUE 1000 YIELD 9.00% RATE = YIELD/2 = 4.50% $ 723.98 (-PV(0.045,40,30, 1000)) PRICE = PV = (-pvírate,nper,pmt,fv)) Market value of debt 3120354 (4310*723.98) Cost preferrence share 0.12 = Current price Dividend / current price (100*8%)/current price 66.67 Market value of preferren = 566695 (8500*66.67)

2 3 a) Semi Annually : COUPON RATE 0.06 YEAR TO MATURITY NPER (Periods to maturity x 2) PMT =K13*K5/2 (face value x coupon rate)/2 FACE VALUE 1000 YIELD 0.09 RATE = YIELD/2 = =K15/2 --PV(K17,K9,K11,K13) (-PV(0.045,40,30,1000)) PRICE = PV = (-pvírate,nper,pmt,fv)) 22 Market value of debt =4310*723.98 (4310*723.98) 23 24 b) Cost preferrence share 0.12 Current price Dividend / current price (100*8%)/current price =8/0.12 Market value of preferrence =(8500*66.67) (8500*66.67)

Debt Preferrence shares Equity Market value Weight 31,20,353.80 $ 5,66,695.00 $ 43,81,875.00 $ 80,68,923.80 38.67% 7.02% 54.31% 1.0000

F Debt Preferrence shares Equity Market value -4310*723.98 =(8500*66.67) =142500*30.75 =SUM(F25:F27) Weight =F25/F28 =F26/F28 =F27/F28 =SUM(G25:G27)